European Central Bank President Christine Lagarde defended the ECB's decision to raise its key interest rate earlier this month, arguing that the move was necessary to keep inflation under control rather than serving as a precautionary measure. Speaking at the central bank's annual monetary policy conference in Sintra, Portugal, she rejected suggestions that the increase should be viewed as an "insurance hike."
Lagarde said policymakers were responding to signs that both headline and core inflation were at risk of rising further. “We were faced with the prospect of rising headline and core inflation,” she said, explaining that without the quarter-percentage-point increase adopted on June 11, inflation could have remained above the ECB's 2% target until 2028.
The latest decision raised the ECB's key interest rate to 2.25%, marking the first increase in a year. Despite tighter monetary policy, current projections still indicate that inflation will not return to the central bank's 2% objective until the final quarter of 2027. Annual inflation across the eurozone stood at 3.2% in May.
At the same time, Lagarde signaled that the ECB does not expect to return to the aggressive rate hikes seen during the period of exceptionally high inflation following Russia's reduction of gas supplies to Europe. “We no longer need to act with the same force. We can make measured adjustments calibrated to the shocks we face,” she said.
